Despite a 20% loss yesterday, Arm stock has seen a nearly 60% increase in 2024 amid AI market hype. Strong sales of ARMv9 chips have contributed to its performance, but analysts suggest the stock is overvalued. Let’s delve into the company’s fundamentals with InvestingPro to assess whether it’s worth the current hype.

Arm’s Fundamental Analysis

• Between October and December 2023, Arm recorded $824 million in revenue, marking a +14% YoY increase, surpassing analysts’ expected revenue of $761 million by 8%.
• Arm expects to achieve revenue between $850 million and $900 million between January and March, with an EPS of 30 cents.
• InvestingPro’s Fair Value, summarizing 12 financial models, stands at $67.62, 43.6% less than the current price, indicating overvaluation.
• Analysts’ consensus estimates anticipate a 23.6% drop in share price from current levels, setting the target price at $91.59 per share.
• Some individual analysts, including Morgan Stanley and Jefferies, offer more optimistic forecasts with target prices at $115 and $98 (previously), respectively.
• Comparing Arm’s revenues to its stock price against peers reveals higher values, indicating potential overvaluation.
• Arm demonstrates a solid financial health level with a score of 3 out of 5.
• Since Arm’s IPO, EPS estimates have increased by 17%, from $0.26 to $0.30, with 15 upward revisions and none downward in the last 90 days.

Arm Stock Analysis – Summary and FAQ

Despite experiencing a 20% decline in stock value recently, Arm Holdings has demonstrated an impressive 60% increase in 2024, primarily driven by the ongoing hype surrounding artificial intelligence (AI) in the market. The adoption and monetization of ARMv9 chips have contributed significantly to the company’s positive performance, leading to increased earnings and exceeding market expectations.

Fundamental Analysis:

• Revenue Performance (Oct-Dec 2023): Arm reported $824 million in revenue, reflecting a robust 14% year-over-year increase. This surpassed analysts’ anticipated revenue of $761 million by 8%.
• Growth Expectations: Arm projects revenue between $850 million and $900 million for the January-March period, with an anticipated earnings per share (EPS) of 30 cents.
• Fair Value and Analyst Estimates: InvestingPro’s Fair Value, based on 12 financial models, indicates $67.62, suggesting a 43.6% undervaluation compared to the current stock price. Analyst consensus estimates predict a 23.6% drop, setting the target price at $91.59 per share.
• Optimistic Analyst Forecasts: Some analysts, such as Morgan Stanley and Jefferies, offer more optimistic forecasts with target prices of $115 and $98 (previously), respectively.
• Comparison with Peers: Comparing Arm’s revenues to its stock price against peers suggests relatively higher values, raising potential concerns about overvaluation.
• Financial Health: Arm maintains a solid financial health level with a score of 3 out of 5.
• Earnings per Share (EPS) Trends: Since the IPO, EPS estimates have seen a 17% increase, rising from $0.26 to $0.30. Notably, there have been 15 upward revisions in the last 90 days.

FAQ (Frequently Asked Questions):

1. What drove Arm’s stock performance in 2024?
   • Arm’s stock surge is attributed to the broader AI hype, supported by the company’s initiatives to enhance and monetize its AI offerings, including the adoption of AI design in all its chips.
2. How does Arm’s revenue growth compare to analyst expectations?
   • Between October and December 2023, Arm exceeded analysts’ revenue expectations, reporting $824 million, a 14% YoY increase.
3. What are the growth projections for Arm in the upcoming months?
   • Arm anticipates achieving revenue between $850 million and $900 million between January and March, with an expected EPS of 30 cents.
4. Is Arm considered overvalued according to financial models?
   • Yes, according to InvestingPro’s Fair Value, which aggregates 12 financial models, Arm’s shares are considered overvalued, with a suggested fair value of $67.62.
5. What are the target prices set by analysts for Arm’s stock?
   • Analyst consensus estimates predict a 23.6% drop, setting the target price at $91.59 per share. Some individual analysts offer more optimistic forecasts, with target prices at $115.
6. How does Arm’s financial health score compare to industry peers?
   • Arm maintains a solid financial health level with a score of 3 out of 5, indicating a relatively stable financial position.

Disclaimer: The provided information is based on Investing.com’s article and does not constitute financial advice.